Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Posts Tagged ‘Irish Continental Group

Market Musings 31/8/2012

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(Disclaimer: I am a shareholder in Irish Continental Group plc) The main news since my last update has been around ICG, whose shares have surged on the back of the announcement of a tender offer pitched at €18.50, or circa 15% above where they closed at on Wednesday. This announcement was contained in its interim results release, which revealed a resilient performance despite the macro headwinds. Revenues were flat, while good work on the cost side meant that EBITDA was only down €1.8m year-on-year in spite of a €4.5m increase in fuel costs. The company is also putting its balance sheet to work with its €111.5m tender offer, which I’m guessing should put net debt / EBITDA at circa 2x by the end of next year, so still undemanding. ICG has also announced the disposal of its Feederlink business for up to €29m, which looks like a great deal – 16x PBT. In all, yesterday’s news reaffirms my view on ICG – a very attractive business model (effectively a duopoly with Stena on the Irish Sea) with potent barriers to entry (capital, control of key port slots and other infrastructure), very strong cashflow generation with no major medium term capex requirements, huge operating leverage benefits once an eventual Irish recovery emerges and a fat dividend to boot.


Elsewhere, Kentz released good H1 results, with revenue +9%, PBT +36%, net cash +36% (to $241m)  while its backlog, at $2.54bn, is up 6% in the year to date. I’ve bought and sold Kentz before and would definitely consider putting it back into the portfolio at some stage – it’s a very well-managed business that is plugged into an area with buoyant long-term growth prospects where the long-term nature of work projects provides good visibility on revenues.


Switching to TMT stocks, betting software group Playtech released its H1 results yesterday morning, which revealed a very strong performance. It’s a stock I used to hold but which I sold on corporate governance grounds, which is a pity as I like the structural growth story around the sector, but not enough to hold a stock that has given me plenty of sleepless nights in the past!


(Disclaimer: I am a shareholder in Independent News & Media plc) INM released its interim results this morning. These revealed a 26% decline in operating profits to €25.4m on revenues that were 4% lower at €272.2m. Trading conditions are, unsurprisingly, described as ‘difficult’. I was, however, surprised by the sluggish progress on the deleveraging front. Net debt fell by €3.5m, or less than 1%, since the start of the year. Led by the drop in profitability, free cash flow halved to €12.7m (H1 2011: €23.0m), but most of this was eaten up by cash exceptional items. INM’s retirement benefit obligations widened to €187.8m by the end of June, from €147.0m at the end of 2011. A potential sale of its South African business would significantly improve INM’s balance sheet and save millions in annual interest costs, and on that note I was pleased to see the group confirm in the presentation accompanying the results that it has received 2 bids for that unit. In all, there is little to get exited about from this release. INM is under pressure due to the tough macro conditions, while its high leverage ratchets up the risks around the company. That is not to say that catalysts for a re-rating are difficult to identify. These include a sale (on reasonable terms) of the South Africa business, a recovery in its 30% owned associate APN’s share price, a resolution of its pension issues and an improvement in advertising conditions. However, identification and successful execution are, clearly, two different things, so I’m disinclined to increase my stake in INM (currently 120bps of my portfolio) for the time being at least.


(Disclaimer: I am a shareholder in France Telecom plc) There was further disappointing news from the French telecom sector, with Bouygues revealing that its profits in that area have sunk due to intense price competition from the new entrant, Iliad (whose results this morning have come in ahead of expectations). France Telecom is also being impacted by this pressure, but the impact is somewhat mitigated by Iliad’s use of FTE’s network. Speaking of FTE’s network, the group’s chairman was quoted by Reuters as saying they are in preliminary discussions with rivals about sharing 3G networks to reduce costs, which would be a welcome move.


Finally, smallcap financial IFG released its interim results today. These revealed a deterioration in profits in its continuing businesses, with UK profits falling due to falling SIPP volumes, investment in risk and compliance, and challenging conditions in the IFA space, while losses in Ireland have widened due to difficult economic conditions. The operating performance is, however, overshadowed by news of a £30m share buyback, which adds IFG to a growing list of firms (CPL, Abbey, Ryanair etc.) here that have launched similar measures in recent times. If only our plcs had the confidence to invest in growing their businesses through acquisition / greenfield initiatives that would (if done properly) augment their growth potential instead of engaging in de-equitisation. Oh well!

Written by Philip O'Sullivan

August 31, 2012 at 8:06 am

Market Musings 2/7/2012

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(Disclaimer: I am a shareholder in RBS plc) Since my last update, there was a lot of talk about the likely fall-out from the Libor scandal. Cormac Leech at Liberum Capital sketched out a scenario showing that RBS could be on the hook for £6bn, which is roughly a quarter of its market capitalisation. Yesterday it was reported that the group could be facing a fine of £150m. Obviously time will tell what the ultimate costs of this will be, but it will likely prove a significant overhang on certain UK financial stocks (in particular, RBS and Barclays) for some while yet, which is why I see no reason to rush into buying more RBS shares (my existing position is only 40bps of my portfolio).


Speaking of UK equities, Schroders wrote a bearish piece on BSkyB – I was struck by this line:


[The] incredibly favourable dynamics it enjoyed until recently will not be the same going forward – potentially leaving investors who paid up for the high expectations of the past a little disappointed. Value investors will of course not need reminding of the reverse point – if you buy a business when expectations are low, the potential for nasty surprises of the kind BSkyB has encountered to permanently hurt your investment is greatly reduced.


Warren Buffett’s recommendation for investors to be fearful when others are greedy and greedy when others are fearful comes to mind!


Irish headquartered conglomerate made a €7m bolt-on acquisition in Sweden. Obviously this is small from a group context, but it does serve to remind one of DCC’s impressive track record when it comes to both buying and (in particular) selling businesses. It’s a stock I really have to find the time to look at in more detail.


(Disclaimer: I am a shareholder in Irish Continental Group plc) Last week saw the release of 2011 port tonnage data from Ireland’s Central Statistics Office. While there wasn’t anything particularly surprising in the overall data (remember, a lot of the results are inferred in other data releases such as external trade throughout the year), there are a number of points of note for listed marine transport firm Irish Continental Group. For starters, from an Ireland Inc perspective, total tonnage handled at Irish ports in 2011 was 45.1m tonnes, which is 17% below the all-time high of 54.1m in 2007. However, within that we see exports set a new all-time high in 2011 (15.24m tonnes), and are now 0.1% above the previous peak (coincidentally, also in 2007). Imports, which are an indication (to a certain extent) of domestic activity, at 29.8m tonnes in 2011 are 23% below peak (2007) levels. Within the Republic of Ireland freight market ICG operates in the Ro-Ro (Roll On – Roll Off, i.e. trucks) and Lo-Lo (Load On – Load Off, i.e. containers) segments at both Dublin and Rosslare ports. Those two ports handled 99% (Dublin 81%, Rosslare 18%) of all Ro-Ro freight and 69% (all Dublin) of all Lo-Lo freight in Ireland in 2011 and are poised to be the main beneficiaries of any future improvement in trade volumes. On the passenger side, some 2.9m passengers (excluding cruise ship passengers) used port facilities here in 2011, 132k of which passed through Cork. Many of those passengers would have traveled on the now-closed Swansea-Cork service operated by Fastnet Line, and some of this traffic will presumably transfer to the Rosslare-Pembroke (operated by ICG) and Rosslare-Fishguard (Stena) routes. Given that ICG has been estimated to have operating leverage of 75% (i.e. for every €1 of incremental revenue it receives, €0.75 drops to the bottom line), any pick-up in activity would have a dramatic effect on its profitability.


Penny stock investors may be interested in Prime Active Capital’s results, released late on Friday afternoon. Conditions are pretty tough for the group, which says: “This has become a tough business and is likely to remain that way for the foreseeable future even as we continue to reduce costs”.


(Disclaimer: I am a shareholder in Allied Irish Banks plc) Speaking of penny stocks, yesterday’s Sunday Independent ran a piece saying that AIB has “held meetings with potential US and Asian investors about the sale of a stake in the bank”.  I imagine that any discussions would be highly preliminary in nature, given the number of ‘known unknowns’ the group faces, not least on the impairments front.


In the blogosphere, Calum did an excellent analysis of the key metrics in the UK pub sector that’s worth checking out.

Written by Philip O'Sullivan

July 2, 2012 at 8:22 am

Market Musings 22/6/2012

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Since my last update Aer Lingus has responded to Ryanair’s takeover approach, saying that the indicated bid price from Europe’s largest LCC undervalues the company, while also noting the regulatory hurdles that Ryanair would have to overcome before being able to gain clearance for any tie-up between the two companies. Echoing the ‘undervalued’ line was Irish Transport Minister Leo Varadkar, who has clearly forgotten that several months ago he said he’d be open to offers of at least €1 a share, which is significantly below the €1.30 Ryanair has stated. Businessman Denis O’Brien offered a few thoughts of his own on the proposed deal in an interview with Bloomberg yesterday.


(Disclaimer: I am a shareholder in Irish Continental Group plc) Following on from the recent secondary placing in ICG, I’ve taken the opportunity to increase my stake in the company. My rationale is that: (i) the exiting of One51 from the share register removes an overhang from the stock; (ii) the recent slide in the oil price – Brent futures yesterday fell below $90 for the first time since December 2010 – is good news for ICG, which doesn’t hedge its fuel requirements; and (iii) at these levels the stock offers a very attractive dividend yield of 6.75%.


(Disclaimer: I am a shareholder in Independent News & Media plc) INM’s Australasian associate, APN, made a AUD$66m online acquisition, which represents attractive multiples of 0.9x EV/Sales and 8x EV/EBITDA, clearly undemanding for digital assets, although it doesn’t appear to have done a lot to lift the share price.


In the blogosphere, the excellent Value and Opportunity blog offered a much needed sense of perspective for these troubled times, while also outlining the bull case for investing in Europe.

Written by Philip O'Sullivan

June 22, 2012 at 8:00 am

Market Musings 19/6/2012

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A big placing and reassuring company updates have given me plenty to contemplate since my last update.


(Disclaimer: I am a shareholder in Irish Continental Group plc) The big news from an Irish corporate perspective since I last blogged was yesterday’s €50m placing in ICG. Irish investment group One51 offloaded its 3m shares at €14.50 apiece, which was a much smaller discount than I would have expected in these difficult markets, but this narrow discount may be explained by ICG picking up 700k of those shares. Not that this necessarily represents a poor deal for ICG – the 700k shares bought back and cancelled at a cost of €10m will save €700k a year in dividend payments, so a 7% annual cash ‘return’ and circa 3% uplift to EPS arising from the lower number of shares in issue looks like a tidy bit of business. It also removes an overhang on the share register, for as regular readers of this blog are aware, I had been expecting One51 to exit this holding for some time. In terms of my reaction to this development, I am closely monitoring the ICG share price with a view to finding a suitable entry level to add to my existing holding.


Turning to the energy sector, Kentz issued a solid trading update this morning just ahead of its analyst jolly / site visit (delete where applicable) to South Africa. The key takeaways are that the group is trading in line with its recently provided guidance, while reassuringly saying that its pipeline gives it visibility on projects out to 2015. At the time of writing the shares are up 7%, which given that there is no change to guidance suggests that there may be at least some short covering going on in Kentz this morning.


(Disclaimer: I am a shareholder in Bank of Ireland plc) Shareholders in Bank of Ireland, as expected, voted overwhelmingly in favour of the transaction with IBRC. This deal should net the group €38.7m in profits.


(Disclaimer: I am a shareholder in France Telecom plc) Following intense speculation of a private equity bid for France Telecom’s UK mobile joint venture, Everything Everywhere, management reaffirmed its support for retaining the brand. However, the media hasn’t yet given up on this story, so we’ll watch this space.


In the blogosphere, I was delighted to see that Paul ‘Paulypilot’ Scott has set up his own blog, which is well worth checking out, while elsewhere Lewis at Expecting Value did a write-up on chocolatier Thornton’s, which is not one for me (my UK consumer facing holdings, Tesco and Marston’s, are far better equipped in my view to get through the ongoing headwinds facing the British economy).

Written by Philip O'Sullivan

June 19, 2012 at 7:52 am

Market Musings 18/5/2012

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We’ve had a Tsunami of company updates since my last blog, so here’s a sector-by-sector wrap of what’s been going on.


C&C posted profits that were in line with guidance. The full-year dividend was raised by a chunky 24%, taking the payout ratio to 30%. On the conference call that followed the results management guided that it will raise this to 40% over time. C&C’s balance sheet is in great shape, with net cash hitting €68m last year. This gives the group considerable scope to launch share buy-backs, pay a special dividend or buy new brands – or in other words, it has a ‘nice problem’ of having to worry about what to do with its excess cash. C&C is a stock I’ve held in the past, but I’d want to do a bit more work on it before seeing if I’ve any room for it in the portfolio.


(Disclaimer: I am a shareholder in Marston’s plc) Elsewhere in the beverage space, Marston’s posted excellent interim results yesterday. Group revenues were +7.6%, underlying PBT +14.7% and the H1 dividend was raised 5%. All divisions (managed houses, tenanted and franchised and brewing) reported a rise in sales and underlying profits. The group is delivering on its ‘F Plan’ (which it defines as food, families, females and forty/fifty somethings) targets, with an 11% rise in meals served. I’m a very happy holder of the stock.


In the energy space, Tullow Oil issued a bullish interim management statement, describing its year-to-date performance as “excellent”. Its year-to-date financials are in-line with expectations, but as ever the main excitement around the stock is based around its exploration activity, which has been yielding encouraging results from Kenya in particular of late.


Staying with the oil sector, my old pals Kentz posted a solid trading update this morning, saying the full-year performance would be “marginally ahead of expectations“. Its pipeline is in good shape, with the order backlog standing at $2.46bn at the end of April, up from $2.40bn at end-December.


(Disclaimer: I am a shareholder in CRH plc) CRH received net proceeds of €564.5m from the sale of its stake in Portuguese cement firm  Secil. As mentioned before, these funds will provide the group with considerably enhanced financial flexibility to expand through M&A over the coming years.


In the retail sector, French Connection was the subject of a lot of attention this week. Richard Beddard did an excellent series of posts on it, summarised here, to which I replied: “Leases and the brand (seems very stale to me) are the big worries I have”.  Those worries didn’t quite go far enough, with the firm posting a profit warning yesterday.


(Disclaimer: I am a shareholder in Independent News & Media plc) We got a lot of news from the media space. UTV Media said that its year to date trading is in line with its expectations. Within the statement it was encouraging to see its Irish radio revenues move into positive territory. Elsewhere, INM said today that “advertising conditions remain challenging and erratic. Visibility remains short and susceptible to influence by macro-economic factors”. It added that net debt currently stands at circa €420m (end-2011: €426.8m). Not a lot to get enthusiastic about, especially on the net debt front, but of course much of the focus on INM is on recent moves in its share register and the intentions of new CEO Vincent Crowley.


In the betting sector, Paddy Power released a very strong trading update, with net revenue growth in the year to date accelerating to 28% from the 17% booked last year. The group is firing on all cylinders and remains the quality play in the betting space.


(Disclaimer: I am a shareholder in Total Produce plc) Irish headquartered food group Glanbia sold its Yoplait franchise back to the brand owner for $18m in cash. Its fellow Irish listed food stock Total Produce reaffirmed its full-year earnings target in a brief update issued earlier today.


(Disclaimer: I am a shareholder in Irish Continental Group plc and Datalex plc) In the transport space, ICG’s IMS revealed a weaker performance from the freight side, while passengers were marginally higher relative to year-earlier levels. This is the seasonally quiet period of the year so there isn’t a lot of read-through from today’s statement. Elsewhere, travel software firm Datalex issued an update this morning in which it said its performance is in line with its forecasts.


In the financial space, IFG posted a solid trading update. Since it agreed to sell its international business the main interest here is its UK and Irish operations. On this front, management says the UK is registering a “robust” performance, while Ireland is “performing well”. The company hints at the possibility of a special dividend post the completion of the sale of the international unit, so I’ll be watching that closely over the coming months.


(Disclaimer: I am an indirect shareholder in Facebook). To finish up with a word on the Facebook IPO, an investment fund I advise went long some Facebook in its IPO today at $40.10. This is very much a short-term trade around its IPO, given that Facebook is trading on 26x historic sales and 107x trailing earnings. Put another way, with a valuation of over $100 per Facebook user, I wouldn’t click the “like” button if someone suggested it as a long-term holding.

Market Musings 28/4/2012

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(Disclaimer: I am a shareholder in Irish Continental Group plc) Since my last blog post I was interested to read the FY2011 results statement from grey market ‘listed’ Irish investment group One51. The management team, led by CEO Alan Walsh, has done a good job at starting to reposition the group, but it remains somewhat hamstrung by its high net debt (€146.4m at end-2011, or 4.0x last year’s EBITDA). In recent months it has disposed of interests in Premier Proteins and IFG, while it is in the process of selling its Speciality Plastics Business.  Management add that “Other assets will be sold as part of the two year Action Plan” and “it is anticipated that net debt levels will be substantially reduced over the course of 2012”. While ‘substantially’ is such a subjective term, I am guessing that the company is giving serious consideration to a sale of its 12.3% stake in Irish Continental Group (current market value €46.8m) as part of this process. Elsewhere within the statement, I was very interested to read of the recent appointment of a number of heavyweight directors along with a reaffirmation of One51’s “commitment to meeting the main requirements of the UK Corporate Governance Code and the Irish Corporate Governance Annex during the course of 2011 and beyond”, which to me reads like it’s also considering moving to a full stock market listing in time.


Overall, I would welcome a placing of One51’s ICG holding given that (i) it will improve liquidity in it; and (ii) from a selfish perspective (!) it would likely provide an opportunity to add to my position at an attractive level.


(Disclaimer: I am a shareholder in Ryanair plc and CRH plc) Goodbody Stockbrokers issued its latest investment strategy note. In it the broker says Ryanair, Dragon Oil, Aryzta, Paddy Power, William Hill, Kingspan and FBD are its preferred Q2 longs, while it still favours shorting CRH.


From a macro perspective, I was interested to see this blog post on the FT website about how stockpiles of copper and aluminium are overflowing into carparks in China. The words “hard” and “landing” come to mind.


Elsewhere, the head of NAMA made some interesting comments yesterday about its overseas portfolio. So far the agency has advanced €280m on working capital for overseas developments. In NAMA’s Q3 2011 report it disclosed that “working and development capital of €873 million has been approved by NAMA to end September 2011 of which €477m has been drawn”. Considering that two-thirds of NAMA’s initial loan ‘assets’ were located in Ireland at the time of its establishment, it does seem that overseas developments are getting disproportionate attention from the agency, but given the grim state of the domestic economy can anyone here really be surprised?


Written by Philip O'Sullivan

April 28, 2012 at 9:54 am

Market Musings 10/3/2012

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Just a quick update from me before I head to the airport on what’s caught my eye in the past 48 hours.


Bloomberg ran an interesting piece about the tactics brewing companies are utilising to grow sales in Africa.


In the financial space IFG said that it has received a preliminary approach for its International Corporate Trustee Services division, or in other words its businesses outside of the UK and Ireland.


In the commodity space, a fund I advise took profits in Dragon Oil yesterday. While I’m positive on the outlook for oil, my gut feeling was that the share price had run ahead of itself. We may well live to regret the timing of the sale, but as the saying goes, nobody ever went broke taking profits. My remaining energy sector plays are BP and PetroNeft.


(Disclaimer: I am a shareholder in Irish Continental Group plc) There was an intriguing development on ICG’s share register yesterday. 12.3% shareholder One51 transferred its shareholding from one wholly-owned subsidiary to another. As a totally unrelated aside, earlier this week I speculated that One51’s ICG stake could be offloaded this year.


Like I said, a quick update! I’ll be back in Ireland on the 18th and look forward to catching up on what’s been going on in the markets then.

Written by Philip O'Sullivan

March 10, 2012 at 7:36 am

Market Musings 8/3/2012

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It’s an unusually busy week on this blog due to a combination of it being results season and also my wish to ‘clear the decks’ from a work perspective before heading away on Saturday.


(Disclaimer: I am a shareholder in Irish Continental Group plc) ICG posted solid FY11 numbers this morning, reporting EBITDA of €49.1m on revenue of €273.3m (I had forecast €49.5m and €272.8m respectively). There really were few surprises within it, given both the simplicity (and predictability) of the business and detailed management guidance. While the company has struck a cautious tone in its outlook statement, I would be inclined to take that with a pinch of salt given both the early stage of the year we’re at, the uncertain financial consequences of competitors exiting the market and/or cutting capacity and some dodgy comparatives (due to the weather disruption in winter 2010/2011, this has presumably impacted on some of the annual comparatives provided today). Anyways, I’ve updated my model post these results, and this has resulted in my valuation for ICG falling from €18.30/share to €16.62/share. The main reasons for this are: (i) a deterioration in the net pension deficit (from €17.5m in 2010 to €32.5m in 2011), which equates to circa 60c/share, and (ii) rising fuel prices since I last updated the model, which add circa €8m to the fuel bill for 2012 (bringing it to €60m). While the implied upside from where the shares are currently trading is relatively muted, I have very conservative estimates put in for top line growth over the coming years – for example, my revenue forecast for 2015 is 14% below 2007 levels despite so much competitor capacity having been taken out of the market. Any positive surprises on this front should lead to material upgrades given the significant operating leverage (estimated at 75%) inherent in ICG’s business model.


In the construction sector, Grafton issued solid 2011 results yesterday. At a headline level, the numbers were in-line with what market watchers were expecting. In terms of the outlook, management see further profit growth in 2012 in spite of challenging conditions in Ireland, and within this it was particularly encouraging to read that like-for-like sales in its core UK business were +4% yoy in both January and February.


(Disclaimer: I am a shareholder in Smurfit Kappa Group) Davy’s Barry Dixon wrote an interesting piece yesterday in which he highlighted Smurfit Kappa’s latest capex initiative. The company, as is its usual form, bought a second hand packaging machine on the cheap from a financially stretched (should that read “defeated”?!!) Italian firm. It’s now using that machine to replace two less efficient machines, which will be broken up and used for spare parts elsewhere in its operations, leaving Smurfit with more effficient, lower cost output while leaving production levels unchanged, thus allowing it to capture the extra margin. With Smurfit’s recent debt refinancing deal giving it enhanced financial flexibility, I wouldn’t be surprised to see Smurfit make further opportunistic purchases of strategic assets from distressed vendors in Euroland.


(Disclaimer: I am a shareholder in Trinity Mirror plc and Independent News & Media plc) Lewis at Expecting Value posted a great piece on the wider print media sector in the UK and Ireland that’s well worth looking at. The only things I’d add to it is that INM’s “Island of Ireland” division is presumably crafted because post the sale of the UK Independent newspaper its UK division effectively comprised the Belfast Telegraph and a low-margin distribution business. Folding that into the Ireland division helps take out management overheads, while INM has exited the Indian market (it had previously owned a stake in Jagran Prakashan). I concur with Lewis that Trinity Mirror is the better UK newspaper play, given its (in my view) better quality portfolio of assets (e.g. national titles such as The Daily Mirror and The People).  I also think there’s more value in Trinity Mirror at these levels than INM, but the presence of several business-savvy billionaires on INM’s share register makes me wonder about the potential for shareholder-friendly corporate activity (e.g. a sale of APN News & Media at a minimum).


In the food sector, agronomy specialist Origin Enterprises posted good interim results this morning. Management says that the company is “on track to deliver full year consensus earnings expectations”. As H1 only makes up around 15% of Origin’s full-year profits, we’ll have to wait until later in the year to make a more definitive judgment on the outlook. However, I should say that I do like Origin given the structural growth drivers (removal of EU quotas, rising demand for agri products from emerging markets, modernisation of Eastern European agriculture) that will underpin the group’s growth long into the future.


Finally, on a lighter note, some wag has posted a video on YouTube saying that the Irish government is planning to sell County Cork in order to raise extra funds.

Written by Philip O'Sullivan

March 8, 2012 at 10:54 am

Market Musings 4/3/2012

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Big share deals and Ireland Inc have provided the most interest since my last market update. Let’s see what the lessons from these are.


(Disclaimer: I am a shareholder in Ryanair plc) To kick off with the transport sector, Ryanair announced that it bought back 9.5m of its own shares at a cost of €39m. This is particularly interesting in light of comments made on the carrier’s conference call post its Q3 results that it could spend up to €200m on share buybacks. This should help to prop up the share price against the pressure of the recent spike in oil prices. I hope to do a detailed piece on Ryanair over the coming days.


(Disclaimer: I am a shareholder in Smurfit Kappa Group plc) To switch from the purchase of a big block of shares to a sale of one, private equity houses Cinven and CVC announced that they sold a 9.7% stake in Smurfit Kappa Group for €158m. The two retain an 8.2% position which is subject to a lock-in agreement until the release of SKG’s Q1 results in May – which I can’t help but wonder if this will be seen as a near-term overhang on the stock – time will tell.


(Disclaimer: I am a shareholder in Irish Continental Group plc) These big share transactions bring to mind a lot of the other stakes in Irish plcs that could change hands this year. The Irish government has signaled a willingness to sell its 25.1% stake in Aer Lingus. One51 has said that it will sell non-core assets, which I assume includes its circa 12% stake in Irish Continental Group. How long will baked goods company Aryzta hold on to its 71.4% shareholding in agri group Origin Enterprises plc for? Given the recent boardroom dispute at UTV Media, what are the intentions of its 18% shareholder and fellow Irish plc TVC Holdings? We could be in for an interesting few months ahead.


Switching to Ireland Inc, the IMF struck a relatively positive note about the country’s prospects. However, the fiscal crisis continues to drag on. Exchequer Returns data for the first two months of the year revealed that the year to date deficit stands at €2.07bn versus €1.95bn in the same period in 2011. The tax take increased from €4.9bn to €6.3bn, but voted expenditure (the part of spending that the government has full discretion over) rose by €474m – this is a disappointing performance. Non-voted expenditure ballooned from €580m to €1.6bn, let by a massive increase in interest costs on the national debt (€848m vs only €61m) and a €250m loan to the insurance compensation fund. The interest costs serve as a reminder of the consequence of this government’s (and its predecessor’s) failure to close the fiscal jaws been revenue and spending. It is astonishing, given the unemployment and emigration crises Ireland is facing, that the government spent 10x on national debt interest costs (€848m) in the first 2 months of 2012 than it did on the Department of Jobs, Enterprise & Innovation (€84.5m).


Finally, in the blogosphere Neonomic did up a good piece on Home Retail Group, which owns Argos and Homebase, that’s worth a read.

Written by Philip O'Sullivan

March 4, 2012 at 10:23 am

Market Musings 24/2/2012

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It’s been a very hectic few days in terms of newsflow. Let’s recap on what’s been happening:


To kick off with the food sector, Kerry Group issued solid FY11 results, with earnings coming in towards the top end of its guided range. Management sees a healthy 7-10% growth in earnings in 2012, but I wouldn’t be surprised if that forecast is augmented by acquisition activity over the coming months.


(Disclaimer: I am a shareholder in RBS plc) The financial sector also featured heavily in recent days. Bloomberg posted a very bullish piece on the outlook for Dublin’s commercial real estate sector, which has positive read-through for the domestic banks here along with RBS and, let’s not forget, NAMA. Speaking of RBS, the bank issued full-year results yesterday that had a few interesting pointers for Ireland Inc. Total impairments at its Ulster Bank unit fell 4% yoy in 2011, although mortgage impairments were nearly 2x 2010 levels last year (£570m vs £294m). In terms of the operating performance, the NIM declined by 7bps to 1.77%, which is not bad, while operating profits were 10% lower at £360m. While I suspect that impairments for the sector have peaked in Ireland, there will definitely be a big change in the mix of impairments in 2012 as residential mortgage books deteriorate further due to the underlying economic fundamentals here.


(Disclaimer: I am a shareholder in CRH plc) Turning to the construction sector, CRH announced a number of management changes at its US operations. This is an important development, as (i) it shows the management cadre’s experience and strength in depth; which (ii) offsets the effect of departures to rivals e.g. Summit Materials. CRH also announced that Nicky Hartery will take over as its next Chairman in May. Elsewhere, as expected Readymix agreed to a takeover by its biggest shareholder, Cemex.


(Disclaimer: I have an indirect shareholding in Dragon Oil) In the energy space, Dragon Oil issued FY11 results that contained few surprises given the detailed guidance provided by management in the run-up to them. Elsewhere, Shell offered $1.6bn or £1.95/share for Cove Energy, which should mean a nice windfall for a lot of Irish private investors. I’ve written before about how I believe one of the themes in the energy space this year will be cash-rich large caps picking up small caps, and Shell’s move for Cove continues a narrative that also features Dragon Oil’s approach for Bowleven and Premier Oil’s acquisition of EnCore.


(Disclaimer: I am a shareholder in Irish Continental Group plc) I was interested to see that HSBC is forecasting significant growth in Irish trade volumes over the coming 10-15 years. Should this come to pass, a key beneficiary of it will be ICG, which is a major player in both LoLo (containers) and RoRo (trucks) freight here.


(Disclaimer: I am a shareholder in France Telecom plc, Independent News & Media plc and Datong plc) Switching to the TMT sector, I was unsurprised to read that France Telecom has cut its dividend. It’s a stock I really need to do some work on to see if there’s merit in keeping it in my portfolio or not. Elsewhere, Datong issued a statement at its AGM yesterday that revealed good progress on cost takeout and optimism on sales growth for the full-year. On the other side of the world, Independent News & Media’s Australasian associate APN posted in-line underlying profits for FY11. There were some boardroom ructions at UTV Media, which I suspect could put the company into play especially given how concentrated the share register is. The firm’s biggest shareholder, TVC Holdings, posted this response to yesterday’s developments.


In the blogosphere, John Kingham did up an interesting piece on Centaur Media, with a focus on its intangible assets. Speaking of intangibles, Lewis did a good article on Communisis that’s well worth a read. He also wrote a piece on Haynes Publishing that’s worth checking out. Wexboy completed (at least for now!) his impressive Great Irish Share Valuation Project.

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